In an unrated report dated Sept 2, SAC Capital analyst Peggy Mak sees lower births and a cut back in discretionary spending as likely factors to be a drag on Cordlife’s organic revenue.
Mak’s report comes after Cordlife reported its results for the 1HFY2022 ended June on Aug 11. During the half-year period, Cordlife saw a 4.0% y-o-y decline in its revenue of $26.2 million as cord blood banking operations have been slow to pick up even as elective healthcare spending has resumed with the economic reopening. Its 1HFY2022 net profit fell by 24.1% y-o-y to $1.9 million.
Cordlife’s total number of samples collected fell 4.5% y-o-y to 8,400, with growth in India offset by decline in Singapore and Hong Kong, although Mak notes that the revenue per sample is lower in India.
During the 1HFY2022, Cordlife’s revenue from its Malaysian arm continued to fall by 10.9% y-o-y, as the weak economy dampened consumer spending. Meanwhile, its revenue in the Philippines grew 6.9% y-o-y, but this Mak speculates that this could be “one-off” growth fuelled by political elections in the country.
In her report, Mak believes that Cordlife’s core banking operation faces macroeconomic headwinds and post-pandemic shifts in consumer behaviour.
Some of the headwinds and shifts include the decline in new births in Singapore, where the number of newborns in the 1H2022 fell by 4.7% y-o-y to 17,546. The number of babies born in Singapore fell 5.1% y-o-y to 35,100 from July 2021 to June. In 2021, crude birth rates, the number of babies born to 1,000 residents, was 8.5% in Singapore and 5.0% in Hong Kong, the analyst notes.
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Overall, Singapore’s population shrunk 4.1% in 2021, marking a second consecutive year of decline, while Hong Kong also fell by 1.6% in the first half of 2022. “Besides death, the decline was also due to expatriates that departed during [the Covid-19 pandemic] and emigrations to other countries. A lower population would lead to lower new births,” says Mak.
The analyst adds that economically, inflationary pressure and recessionary concerns could cause a cut back in discretionary spending such as for cord blood banking services. She notes as well that in Singapore, Cordlife competes with the public cord blood bank, Singapore Cord Blood Bank, which also offers private banking services.
Although its total contract liabilities of $77 million could underpin forward revenue and earnings, Mak does not believe organic revenue can return to pre-Covid levels in the next two years.
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Cordlife has a balance sheet with net cash of $74 million or 29 cents per share, of which Mak believes “the bulk” are advanced receipts.
The company is currently trading at 0.7x price-to-book ratio (P/B) and 0.9x price-to-net tangible assets (P/NTA).
As at 2.14pm, shares in Cordlife are trading flat at 35 cents.
